Need advice on possible investment in rough area

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Need advice on possible investment in rough area

Adam Britt
Bessemer, AL · Member since 2017 · 49 posts · 30 votes

I would like some opinions about an upcoming possibility. I apologize for the wall of text but I want to provide accurate detail for best advice.

I’m one of the millions struggling hard against a massive student debt that currently requires 1/2 of everything I make. Money is scarce even working 2 jobs.

Real estate is the only way I will ever escape. The rat race, while I am paid semi-decently, can never get me out of 12-15% interest student loans of 100k.

Paying off my loans aren’t really an option. I would need to massively increase my salary to even pay the loan down with that interest rate. Let alone pay it off.

All that is to say ... I’m dying to get into real estate, but saving up to buy isn’t practical. It would take me 60 years to save that kind of cash. So I need to use the magic of OPM (other peoples money).

Now, I have great credit and can probably get some solid loans, including from family. But I want to be very cautious from overextending myself. As such, higher price properties are ... frightening to me.

An older relative has just moved out of a 3/1 in a very rough neighborhood. I would probably consider it C/D class. She built the house in the 60s and has lived there till recently. I believe I could get the house for probably 10-15k. She is only expecting pennies for it. My ideal would be to Section 8 the house.

However, I would love y’alls opinion.

What costs would you all warn me about? Will I need to redo electrical and such due to the age of the house to make it housing compliant? What would you budget for that?

Would a rough area stop you from considering a deal like this? I see dollar signs with a 700-800$ section 8 rent with nearly no overhead if I can get this thing with 10,000$, but I don’t know what dangers and problems to expect down the line.

Please illuminate me to what you would look for! I originally wrote the house off due to expected repair costs but ... a friend who flips for an investor insisted it may be worth it if I can cover those with private loans .... unless the area itself would make this a no-go.

This is near Birmingham AL in a higher crime area in case that helps.

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Michael Ealy
Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
7y
Originally posted by @Adam Britt:

I would like some opinions about an upcoming possibility. I apologize for the wall of text but I want to provide accurate detail for best advice.

I’m one of the millions struggling hard against a massive student debt that currently requires 1/2 of everything I make. Money is scarce even working 2 jobs.

Real estate is the only way I will ever escape. The rat race, while I am paid semi-decently, can never get me out of 12-15% interest student loans of 100k.

Paying off my loans aren’t really an option. I would need to massively increase my salary to even pay the loan down with that interest rate. Let alone pay it off.

All that is to say ... I’m dying to get into real estate, but saving up to buy isn’t practical. It would take me 60 years to save that kind of cash. So I need to use the magic of OPM (other peoples money).

Now, I have great credit and can probably get some solid loans, including from family. But I want to be very cautious from overextending myself. As such, higher price properties are ... frightening to me.

An older relative has just moved out of a 3/1 in a very rough neighborhood. I would probably consider it C/D class. She built the house in the 60s and has lived there till recently. I believe I could get the house for probably 10-15k. She is only expecting pennies for it. My ideal would be to Section 8 the house.

However, I would love y’alls opinion.

What costs would you all warn me about? Will I need to redo electrical and such due to the age of the house to make it housing compliant? What would you budget for that?

Would a rough area stop you from considering a deal like this? I see dollar signs with a 700-800$ section 8 rent with nearly no overhead if I can get this thing with 10,000$, but I don’t know what dangers and problems to expect down the line.

Please illuminate me to what you would look for! I originally wrote the house off due to expected repair costs but ... a friend who flips for an investor insisted it may be worth it if I can cover those with private loans .... unless the area itself would make this a no-go.

This is near Birmingham AL in a higher crime area in case that helps.

Adam,

I've done bad areas. In fact, that's how I re-started (I went through bankruptcy). I became really good at managing properties in D and even F (war zones) areas.

Having said that, it's a LOT of work. It's a LOT of headaches. And literally, I could have been shot or stabbed and good that none of those happened to me. 

One time, an 8-unit property was practically given to me so I jumped on it.  The property took so much of my time that I didn't have time for anything else. To be honest, I regretted the decision because if I handled properties in better areas, I could have done MORE properties, with less headaches and actually make MORE money.

So my advice: DO NOT DO A WAR ZONE property as your first deal.

The property, its tenants, and the headaches will ROB of your time (which in turn robs of you of opportunities to do more deals), your sanity and your peace of mind. You're working 2 jobs as it is and a property in a bad area is ANOTHER JOB. Think of it this way: that $700/month, even if we assume that's all cashflow (which it is not) - is what you're going to get paid for 10 hours/week of work (because that's what it could take for a house in a bad area). So do the math:

$700 divide by (10 hours/week x 4 weeks) = $17.50/hour

Now the reality is - the real cashflow from this property will be around half of that number ($350/month) because something always go wrong. You can have a tenant who does not pay for the month or something bad (like a fine from the city for a broken window that the tenant did but does not want to pay for).

So really, you will end up making less than $9/hour.

There are better deals out there. Just wholesale the deal to a landlord who knows what they're doing (and get paid a quick $3,000 wholesale fee, working 10 hours total to find a buyer: now that is $300/hour which is way better).

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  • Adam Britt
    OP
    Bessemer, AL · Member since 2017 · 49 posts · 30 votes
    7y
    Originally posted by @Bryan Miles:

    Hey Adam,

    I'm curious what you are calling a C/D neighborhood? I happen to be a huge fan of these areas. There are definitely areas, neighborhoods, streets and blocks that I will not own a house; however, I believe you can make most any house work for you. If you consider wholesaling the house will you give me a call. 

     Bryan! You may not recognize me, but I actually spoke to you a few years back. Absolutely will-do. 

    0Reply
  • Adam Britt
    OP
    Bessemer, AL · Member since 2017 · 49 posts · 30 votes
    7y
    Originally posted by @Megan Pugh:

    @Adam Britt are you a teacher or professor? If you are start teaching English online friend. Great way to earn some extra income.

     Teaching English online? I didn’t consider that option. Not exactly a professor by trade but I’ve trained hundreds of students in my medical field ... hmmmm

    0Reply
  • Adam Britt
    OP
    Bessemer, AL · Member since 2017 · 49 posts · 30 votes
    7y
    Originally posted by @Igor T.:

    There is Public Service Loan Forgiveness Program. After 120 payment you can apply if you work for government or nonprofit.

     This is a great program. Unfortunately, my wife has not worked for a Public Service workplace. Fun fact: going after that forgiveness program means you don’t pay anything upon forgiveness. After 25 years, there is a more general loan forgiveness program that anyone can use if you are on income based repayment. Which we are. However, you pay income tax on the forgiven amount. I’ve run the numbers ... we will pay twice as much as the loan balance in interest and taxable income if we do that rout vs just paying it off in 20 years. 

    Crazy huh? Now if she could find a job with a public service program and work there 10 years, we can be out of debt by 45 ... still hurts my heart to not get the ball running sooner being better. 

    0Reply
  • Igor T.
    Cleveland, OH · Member since 2018 · 61 posts · 21 votes
    7y
    Originally posted by @Adam Britt:
    Originally posted by @Igor T.:

    There is Public Service Loan Forgiveness Program. After 120 payment you can apply if you work for government or nonprofit.

     This is a great program. Unfortunately, my wife has not worked for a Public Service workplace. Fun fact: going after that forgiveness program means you don’t pay anything upon forgiveness. After 25 years, there is a more general loan forgiveness program that anyone can use if you are on income based repayment. Which we are. However, you pay income tax on the forgiven amount. I’ve run the numbers ... we will pay twice as much as the loan balance in interest and taxable income if we do that rout vs just paying it off in 20 years. 

    Crazy huh? Now if she could find a job with a public service program and work there 10 years, we can be out of debt by 45 ... still hurts my heart to not get the ball running sooner being better. 

    Adam. You situation has very easy solution, but many people will not write it publicly.

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    @Adam Britt

    Sounds like your wife needs to suck it up and find herself a decent job somewhere else . Your going to be strapped and it’s going to take two decent incomes to do this right

    0Reply
  • Justin Miles
    Flipper/Rehabber · Alpharetta, GA · Member since 2018 · 70 posts · 10 votes
    7y

    @Adam Britt if you have 100k wrapped up at 12-15 percent you need to get aggressive and pay that off. If it were me and I don’t know your situation but I’d buy the war zone home cash and live in it rent free with no internet cable eating rice and beans for 2 years and get crazy with that debt or as others said restructure It somehow. Just think of the cash flow getting rid of that payment will be and the saved interest in the long term.

    0Reply
  • Jonathan R.
    Investor · Wichita, KS · Member since 2017 · 584 posts · 813 votes
    7y
    Originally posted by @Adam Britt:
    Originally posted by @Timothy M.:

    My man, @Adam Britt, you do notttt need to be in real estate right now.  

    You say you and your wife have 100k in student loan debt?  Even if that debt is at 10-15% interest, what you two need to do right now is hustle with second jobs (or advance in your own career) to the point where you can pay off that anchor. Even if you have to 'eat' 15k in interest a year, surely you can - between the two of you - save $20k a year between your 9-5 and extra work on the weekends?  

    That puts your worst-case scenario at about a 20 year payoff.  This is a much, much better plan than moving overseas and never coming home (did someone up in the thread earlier actually suggest that or am I taking crazy pills?). This is also if you NEVER refinance the debt - which you will certainly do at some point, taking it to a more 'comfortable' 6-8% and freeing up thousands per year in interest payments - so your payoff will be much, much quicker, I imagine.

    Important - and perhaps uncomfortably direct - questions. You have said a number of times that your wife incurred this debt. Is she working?  Did/does she have a plan to contribute to paying it down? I think you said upstream that she is not as concerned by this debt as you are.  

    Hang in there - now is not the time to start making crazy decisions like buying homes in the hood (which will contribute what, like $200 a month towards your bottom line?). Get a plan, buckle down, work an extra job, and you'll look back on this in < 10 years no worse for the wear, a little more grizzly but a lot wiser and ready to crush some RE.

    ETA: I re-read upstream and see that you're already working on the weekends, My hat is off to you for the hard work, and from one internet stranger to another, I genuinely hope you are able to snag some raises in the near future with that work ethic.

    Back to the more delicate matter I raised earlier - is your wife working...?

     An astute observation my friend. I like your style, your direct approach, and your sense of humor. 

    My wife currently works part time. After being “downsized” twice from full time work. She is now working for about 400$ a month (for that same company ironically) while also chasing her dream of owning her own business. A business that has not born the fruit of financial profitability of yet. 

    And so, you have uncovered an underlying psychosocial issue that further muddies the water. She could get a job elsewhere making 30-35k a year, like she did before. This would theoretically allow us to pay off debt easier. Or she could continue to pursue her long-time dream of building her creative floral business from the ground up... and we basically rely on my multiple job efforts for all consistent income and debt payment. 

    I am definitely getting the raw end of the deal, but it comes down to this: Crush her dreams so we can pay off debt and I can fulfill my dreams of financial freedom? Or struggle alone to find creative ways to reach my dreams and goals while she also pursues hers ... that is the question. 

    (To more directly answer a secondary question- she ended up with 75k in student loans for a useless bachelors degree that does not add any value at all to her work opportunities. Long story and not really important, because it is a good 20 years too late to do anything there. Thank the “Every student should go to college no matter the plan” mentality of parents of the previous generation.)

     My wife makes $400 a month roughly too, she works part time as a para at a local school district. This financial freedom thing is all on me. We are pregnant with child #3 right now, so she’ll be taking the fall off. It’s been like this the whole time, basically a one income family. Fortunately, we just bought a 1 bed 1 bath house that can be pretty easily made to a 2 bedroom to bring in $675 a month, we partnered with a friend, so we’ll get half of that. We close on Friday-$12,500! D area for sure. Our situations are/were similar. Just go for it, prove to people you can do a profitable deal, and then finding others to partner with you is ridiculously easy after that. Almost everyone dreams of a piece of the real estate pie. You can be the guy to help change their life too.

    0Reply
  • Timothy M.
    Arlington, VA · Member since 2015 · 60 posts · 100 votes
    7y
    Originally posted by @Adam Britt:
    Originally posted by @Timothy M.:

    My man, @Adam Britt, you do notttt need to be in real estate right now.  

    You say you and your wife have 100k in student loan debt?  Even if that debt is at 10-15% interest, what you two need to do right now is hustle with second jobs (or advance in your own career) to the point where you can pay off that anchor. Even if you have to 'eat' 15k in interest a year, surely you can - between the two of you - save $20k a year between your 9-5 and extra work on the weekends?  

    That puts your worst-case scenario at about a 20 year payoff.  This is a much, much better plan than moving overseas and never coming home (did someone up in the thread earlier actually suggest that or am I taking crazy pills?). This is also if you NEVER refinance the debt - which you will certainly do at some point, taking it to a more 'comfortable' 6-8% and freeing up thousands per year in interest payments - so your payoff will be much, much quicker, I imagine.

    Important - and perhaps uncomfortably direct - questions. You have said a number of times that your wife incurred this debt. Is she working?  Did/does she have a plan to contribute to paying it down? I think you said upstream that she is not as concerned by this debt as you are.  

    Hang in there - now is not the time to start making crazy decisions like buying homes in the hood (which will contribute what, like $200 a month towards your bottom line?). Get a plan, buckle down, work an extra job, and you'll look back on this in < 10 years no worse for the wear, a little more grizzly but a lot wiser and ready to crush some RE.

    ETA: I re-read upstream and see that you're already working on the weekends, My hat is off to you for the hard work, and from one internet stranger to another, I genuinely hope you are able to snag some raises in the near future with that work ethic.

    Back to the more delicate matter I raised earlier - is your wife working...?

     An astute observation my friend. I like your style, your direct approach, and your sense of humor. 

    My wife currently works part time. After being “downsized” twice from full time work. She is now working for about 400$ a month (for that same company ironically) while also chasing her dream of owning her own business. A business that has not born the fruit of financial profitability of yet. 

    And so, you have uncovered an underlying psychosocial issue that further muddies the water. She could get a job elsewhere making 30-35k a year, like she did before. This would theoretically allow us to pay off debt easier. Or she could continue to pursue her long-time dream of building her creative floral business from the ground up... and we basically rely on my multiple job efforts for all consistent income and debt payment. 

    I am definitely getting the raw end of the deal, but it comes down to this: Crush her dreams so we can pay off debt and I can fulfill my dreams of financial freedom? Or struggle alone to find creative ways to reach my dreams and goals while she also pursues hers ... that is the question. 

    (To more directly answer a secondary question- she ended up with 75k in student loans for a useless bachelors degree that does not add any value at all to her work opportunities. Long story and not really important, because it is a good 20 years too late to do anything there. Thank the “Every student should go to college no matter the plan” mentality of parents of the previous generation.)

    Ah, it is... as I unfortunately expected. :(

     I hear you loud and clear, my dude - you don't want to crush your wife's dreams, want her to succeed at her chosen avocation, etc.  But let me flip this around on you.  If you told her that she had to work not just one, but two jobs, just so that you could follow your passion in real estate, which may or may not pay off, and in the meantime you'll be putting only about 5k a year towards the family bottom line... my man, she would leave you.  Rightfully so, IMHO.  Why is it any different if it's her following her dream but you're the one breaking their back at multiple jobs?

    Honestly, if she could pull 30-35k a year right now, you two could be out of this debt problem IN FIVE OR SIX YEARS, TOPS.  I feel like I have to shout that at you!! (Lovingly, of course!) Your first post has you worried that youll literally never get out of the hole, and all along, the "secret" is just... for her to work a job for a few years before trying to get her dream business off the ground?

    At this point - respectfully - I posit that this is a question not meant for a RE forum, but probably best for a relationship advice column. The problem in front of you is very, very manageable... if your spouse works.  If she doesn't work, you two are sunk. Sounds like you may have some very frank conversations ahead of you.

    Genuinely, with not even a hint of irony, I am pulling for you, bro. Good luck.

    0Reply
  • Jerry Murphy
    Investor · Culver City, CA · Member since 2017 · 76 posts · 40 votes
    7y

    @Adam Britt

    Sorry for the late reply. I think you misunderstood my advice. I wasn’t advising a young person going to college. My advice is for someone who is up to their eyeballs in student loans and needs a couple of years of relief to save and build cash flow.

    You have to do something to get rid of the monthly student loan bill. Your loans will go into deferment if you take 6 credits per semester. Community college can be really cheap. You may get 6 credits for under a thousand dollars. During this time you don’t have to make payments on your loans.

    So take super easy classes that don’t take much time. It won’t interfere with your job or real estate investing time. Then put the money - half your pay checks you say - into income generating activities. Repeat this for as many semesters as you need until you are bringing in enough income to pay off your loans. (Or just do it forever. Bankruptcy doesn’t erase student loans but death does.)

    You definitely are not 15 years too late. Sorry I didn’t explain this better.

    0Reply
  • Adam Britt
    OP
    Bessemer, AL · Member since 2017 · 49 posts · 30 votes
    7y
    Originally posted by @Jerry Murphy:

    @Adam Britt

    Sorry for the late reply. I think you misunderstood my advice. I wasn’t advising a young person going to college. My advice is for someone who is up to their eyeballs in student loans and needs a couple of years of relief to save and build cash flow.

    You have to do something to get rid of the monthly student loan bill. Your loans will go into deferment if you take 6 credits per semester. Community college can be really cheap. You may get 6 credits for under a thousand dollars. During this time you don’t have to make payments on your loans.

    So take super easy classes that don’t take much time. It won’t interfere with your job or real estate investing time. Then put the money - half your pay checks you say - into income generating activities. Repeat this for as many semesters as you need until you are bringing in enough income to pay off your loans. (Or just do it forever. Bankruptcy doesn’t erase student loans but death does.)

    You definitely are not 15 years too late. Sorry I didn’t explain this better.

     Hey Jerry, thanks for the clarification! That actually does make sense as a potential strategy. I can see the cost / benefit of dropping a thousand or two a year to save many thousands long term! 

    I’ll have to consider this option. 

    0Reply
  • Adam Britt
    OP
    Bessemer, AL · Member since 2017 · 49 posts · 30 votes
    7y

    Good morning, for anyone still keeping an eye out, or for new readers, I’ve got a brief update. 

    With some hard work and a great deal of initial frustration, we have managed to refinance all of my wife’s private loans in her own name within the 5-7% interest range (as opposed to the previous 12-15%). 

    We have also paid off one of her smaller private loans (about 3000 at 15%). We continue to put chunks of money on them in the thousands every few months. 

    She has not yet gotten a full time job. What she is making now following her dreams is nearing what she would make getting another job as some office assistant. 

    Now all I have to do is figure out how to curb her desire for going on vacations that we can’t afford every month!😜

    Her credit is also now in the high 700s and these evil companies are sending her cards in her own name, which I can’t watch. Not cool guys...not cool. She still doesn’t have the restraint needed to handle that responsibility  

    We aren’t out of the woods but we have made some substantial progress. Overall we have now saved  at least 16,000 over the life of the loan with these new refinance terms, not counting what we may save for earlier payoff since we can put more money towards principal. 

    And with less than 7% interest on most loan amounts, it is starting to make more and more sense to invest in something that will have a higher return. Real estate paying more than 15% return may have been hard to do at my experience level.  But an average 7% ... that is doable.  

    Now to save up enough for a down payment...

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